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"Ever wonder if City Council is as contentious and chaotic as it is sometimes portrayed? Here you can get a progressive perspective on some of the issues from someone who spent four years in the trenches. Totally unbiased, though!Feel free to comment but keep it respectful, just like they do at council."

Sunday, February 23, 2014

Development charges and campaign funding

It was not a fun meeting at Strategic Priorities and Policy
Committee on Thursday.

On the agenda was the matter of development charges (DC), a
concept that is difficult to grasp at the best of times, and one that always
upsets the players in the development industry. And, since about half the
council is dependent on the goodwill of the industry for their campaign
expenses, it's not something you really want to deal with on the eve of an election.
As it was, the meeting started late and a couple of councillors gave their
regrets, Paul Hubert because, as he tweeted, he was proudly attending his son’s
graduation, and Nancy Branscombe for an unspecified reason. Joe Swan was missing as well, no regrets noted.

The purpose of the meeting was to update council about the
projections for the development charges by-law that is due in early August.
That by-law will set the costs assigned to new homes and businesses erected in the
city to cover “hard” services like roads and bridges and sewers and stormwater
management and "soft" services like police and fire protection and libraries. That
by-law has to be reviewed every five years and you have to get it done by the
deadline or the city can’t issue any building permits. Development would come
to a halt.

The bulk of buildings covered by the development charges
by-law are residential. In London that means mostly single family houses. New single family homes are
all assigned the same rates since it is assumed that they all get the same
services in the form of roads, sewers, electricity and so forth. So whether
your house cost $150,000 or $500,000, the development charges are the same.
Under the Development Charges Act, you can’t charge more for one so that
another can get a break. Commercial DC rates, including apartment buildings,
are assessed on size of the building.

In London, some buildings don’t pay any development charges.
Industrial buildings, for example. And institutional buildings tend to get a
fairly favourable rate. They still get the services however, the roads, the
electricity, the sewers. So someone has to cover that cost.

Guess who. The taxpayer, of course.

When I was on council, I heard time and again that growth
pays for growth. It’s nonsense of course; if you give some a freebie and you
can’t charge the others more to cover it, how can growth pay for growth?

So how do development charges get set?

Basically, you start with a forecast of your population
growth over the next 20 years; in London that has been less than one per cent
per year although a few on council, the two Joe’s in particular, wanted the
forecast to be higher. That’s like asking the weatherman to raise the predicted
temperature. It may sound better, but don’t leave your sweater behind!

Next, you figure out how many houses will accommodate that
growth, as well as commercial and industrial development, and what the city
will have to provide in the way of roads and other hard services (and some soft
services). The further out you go, the more it’s going to
cost. You add up all the costs of those projects and subtract a bit here and
there as dictated by the rules. For example, when a new big box development
goes in, it’s not only the new subdivision nearby that benefits; a lot of
downtown people and people from right across town will probably drive there. So
you have to deduct the part of the cost that benefits people in general. That’s
called the non-growth portion.

Who pays for that? Right again. The taxpayer.

So now you have a final number. That gets divided by the
number of anticipated developments in the various categories--residential, institutional, commercial--and a number is established.

The number is not perfect. The growth projections may be
off; the estimates of the costs of the projects may be overly conservative or
optimistic; there may be an economic slump. If needed, you can revise a year or
two down the road. But you have to come up with a rate or you won’t have any
development, and if the rate you set doesn’t cover the cost, someone is going
to have to pick up the difference.

Yep. That’s you, the taxpayer.

The number that staff brought forward was a bit of a shock.
Where currently the DC for a new single family house is $$23,716, staff
projected a cost of $40,334. That’s a bit of a hike for sure.

Why such a big increase?

The bulk of it was predicated on the inflationary costs of
hard services, particularly roads. Labour costs, costs of asphalt and there are all those road widenings that people are clamouring for. Four lanes aren’t
enough; we want six. And many of the projects had already been deferred
previously in order to accommodate developers who had challenged the city at
the Ontario Municipal Board. That’s what happens when you put things
off.

Included was also the plans for bus rapid transit (BRT) to which
council is committed. The expectation is that the higher levels of government
will be subsidizing that heavily, but you never know.

There was also the addition of something that isn’t currently included, the cost of supplying water to new areas. At present, those added
costs are picked up by the ratepayers. That’s part of the reason why you keep
getting big increases in the water rates; you’re covering the cost of extending
those services to new development.

Then there is also the cost of providing a new operations
centre for the north part of the city where so much development is taking
place. Probably a good investment in the long run, but expensive to build.

If you take out those two things, and cut out a lot of the
road widening, the DC for a single family detached could be cut to $31,021.
Still a bit of a hike, but not quite so bad.

There had been an unprecedented number of meetings with the
development industry, staff reported. Lots of opportunity for input. None of
this should come as a surprise.

Still, as with one voice, they decried the estimates.
Definitely get rid of the road widening, they urged. Forget the costs of
providing clean water; let the ratepayers handle that. And no operations
centre; make do with what you have.

How could they possible compete with surrounding areas—St.
Thomas, Woodstock, Ilderton, Arva—with those kinds of charges? Staff should get
back to the drawing board and find efficiencies. Home-building is the backbone
of economic activity. Get the rates down to under $30,000 and put citizens back
to work! If council wanted affordable housing, it sure wouldn’t happen with DC’s
like these.

The charges cited didn’t include picking up the costs of the
exemptions for industrial and downtown, Joni Baechler pointed out. That would
have to be covered by taxpayers, people who had already paid for their own
services. And what if the grants for BRT didn’t come through ? What then?

That attracted the attention of Harold Usher, who along with
Baechler sits on the London Transit Commission Board. Whether or not they got
government money, they would have to stick with the BRT plan. More road widening
would be even more expensive.

Then Sandy White got into the debate. “This is a tough one,”
she proclaimed. Affordable housing was important. So was the economy. The city
needs to grow. As for the BRT, “it depends where you come from in life,” she
continued. They had to make things more affordable and get back to the basics.

What exactly she meant by that was not clear. She had been
at a meeting earlier in the day where people wanted a school but not enough
homes were being built; the whole community was suffering.

“We’re culpable,”
she claimed. “We’re in a recession.”She
didn’t seem to realize that if you don’t cover the cost of development by DC’s,
you have to bill the general taxpayer. Someone has to pay.

Dale Henderson, who has been rather quiet since his return
after a brief stint in hospital, had the solution. They had to do things
differently, cheaper. Maybe substitute cement for asphalt, don’t put in any
curbs or gutters, do some wheeling and dealing, maybe get the contractors to
absorb the costs.Just change the rules
and save some money.

Which rules he wanted changed, he didn’t say. The projects get
the go ahead from council, but most of the rules—the Building code, the
Planning Act, the Development Charges Act, the Provincial Policy Statement—come
from the province. Wages are negotiated by the Building Trades Unions with the
industry. City projects are put out to tender for the best price.

Matt Brown wondered whether the increases couldn’t be phased
in but, as staff pointed out, you’d still have to find the extra money
somewhere. Putting it off just means that you have higher costs and debt down
the road.

Denise Brown was worried about how they could compete with
surrounding communities for the tax dollars that buying new homes brings. “Growth
has to pay for growth,” she agreed, “but you have to be reasonable.” What she
meant by that, I’m not sure. It’s as if the whole lot of them didn’t realize
that development costs money and it has to be paid for. Either you come up with
the money, or you cut back on the development.

Fontana was adamant. A 30% increase in DC’s was not on for
him.His “comfort level” was in the $27,000
to $28,000 range. Steve Orser, Paul VanMeerbergen and Bud Polhill agreed. The
increases were outlandish, they would kill the industry, all the business would
go to Woodstock, Stratford and St.Thomas. The DC’s would kill the goose that
laid the golden egg.

Yes, indeed. It could certainly annoy the goose that lays
the golden eggs in councillors’ war chests.

As I described in more detail in Hey,
big spender , many councillors rely heavily on developers and corporate
donors to sponsor their campaigns. For some, like Paul VanMeerbergen and Bud
Polhill, it accounts for almost all of it. In fact, the only ones who receive
little or no developer money are Joni
Baechler, Judy Bryant, Paul Hubert, Nancy Branscombe and Bill Armstrong.

Judy Bryant spoke. With respect to affordability, she was
concerned about the balance between those buying new homes and those trying to
hang on to the homes they already had.Making taxpayers pick up the shortfall in DC revenue could tip that
balance.

Baechler had a bad cold, but she didn’t let that stop her
from speaking up. She was surprised, no shocked, at what she was hearing from
some of her colleagues. “Staff don’t just sit around with a technical review committee and throw projects in the mix
willy-nilly and say this is the total number of capital projects and see what
spits out!” she told them. There had been much deliberation
and discussion with the industry, at least 40 meetings. But some on council didn’t seem to realize
that every time they approved a project, they were feeding into the costs. The
whole Southwest Area Plan has innumerable costs associated with it. So they
could shelve the Southwest Area Plan but “I didn’t think that was what you wanted
to do!” she continued. Yes, their cost were higher than neighbouring communities, but the
difference was roads. London has four and perhaps soon even six lane highways running
through it. That’s not the case with the neighbours. Roads are expensive.
Furthermore, she had voted against extending services to Arva unlike those who
were now complaining about competition. They were talking out of both sides of
their mouths!

She was losing her patience. They were talking about
deferring some of the roads projects, but where did thing think they were going
to go? They’d come back in the next go round and they’d be dancing the same
dance! “Look at Kitchener and Waterloo,” she urged. They were having the same
problem.

Growth hadn’t paid for growth in the past 20 years, she continued. Right now, taxpayers were paying 2.5% to cover the shortfall
in development charges; $242Mover 20
years, $ 12.5M was going to the industry from the taxpayers this year alone. That was money from the homeowner to
the new home buyer. And that new home was worth a whole lot more, on average,
than that of the home owning taxpayer. Talk about affordability!

Sandy White didn’t like being taken to task by Baechler. But
she had an idea. She moved that staff develop a sliding scale for DC's based on how
wealthy the buyer is. No one seconded her motion, perhaps because they
understood there was no way of doing that legislatively or politically.

Fontana was incensed at being “lectured to for 15 minutes,”
as he put it. He re-issued his comfort level: $27,000 to $28,000.

That meant a shortfall of $4,000 per house, Baechler pointed
out. How would that be paid for? And she didn’t appreciate him interjecting and
editorializing from the chair.

A belaboured debate about who should pay for the costs of
providing water to a new home ensued. Few thought the homebuyer should pay. But
they weren’t happy about increasing the rates for existing homeowners. What to
do?

Defer, of course, in the hope that staff could provide more
information that would make the decision easier. And while they were at it,
staffshould also bring back a report on
"the whole picture" including the impact of DC’s on home-building and jobs and
the economy, Sandy White suggested, adding “Sometimes I do have wisdom.”

“The numbers are what the numbers are,” city treasurer Martin
Hayward informed them. And, if staff had to do entire analysis of the economic
impacts as White wanted, well then they had better put up some money for hiring
a couple of economists. Staff had enough to do trying to get everything done
before August. Because if they didn’t
meet the deadline, “we will have no growth,” Hayward said.

6 comments:

Dean Sheppard
said...

I am so pleased to see staff giving Council straight up blunt answers that even the dim-witted among them have can understand. It places responsibility where it belongs - on the elected officials - to understand how the City finances work and the implications of their decisions.

If I live in a modest home without fancy features in an older part of town why should I pay extra taxes so that others can buy a new home that they can't afford? If they cannot afford to pay the full and complete costs of servicing that new home then they cannot afford that new home.

I have a great idea. I want a new car. I want a fancy car. My older car is getting a bit worn and new cars are better. I can't afford a new and fancy car but building cars is good for the economy, isn't it? Building cars creates jobs.

That is why all of you should help me to buy a new car. You won't mind pitching in to help me buy a newer, better car will you? After all, it will be good for the economy.

If a developer has land in London to develop, they can't move that land to Woodstock or St. Thomas. If someone wants to buy a home in London, they aren't looking to Woodstock or St. Thomas. These arguments are non-sense.

Growth should pay for growth. Another $15,000 on a $500,000 home isn't going to send buyers to the next community.

small point Gina. The water DC would be on the Lake Erie and Huron system,not on the pipes to new homes. That part is already in the water rate, as is the costs of expansions to the Huron and Erie supply. The question is should all 100 thousand or so households and businesses subsidize that cost for the 1400 or so new homes built each year?

so let me get this straight. all new home buyers will not spend $10,000 more on a house but would rather sit in their cars longer year in and year out to live in Woodstock, or St. Thomas, or wherever? yeah, right. And only our city councillors are too stupid not to see how silly this is??